"Increasing the Basis" of rental property value when selling it

squidlady — Sat, 08 May 2021 20:12:37 GMT

Please see this thread for my earlier questions on selling this rental.

https://ttlc.intuit.com/community/taxes/discussion/sale-of-rental-house-in-other-state-[product key removed]down/00/2246949

The house was purchased late 2006. In February 2007, before it was rented for the first time, the house was flooded due to a frozen/burst pipe. This damage required replacement of carpet, flooring, appliances, cabinets, drywall, ceilings, etc. I opted at this time to upgrade an otherwise basic rental unit with premium carpet, flooring, and appliances. At the same time I decided to have an unfinished room finished, which included adding a window, carpet, drywall, electrical, heating vent, telephone line, etc. The cost of the addition was not separated from the repair costs, nor were estimates made which would point to additional value due to the upgrades. Total cost of the work was $25,000. This figure does not include extra costs related to the flood but not associated with improving the property, such as demolition, trash hauling, additional utility charges (80,000 gallons of water, etc.)

I've read here (https://learn.roofstock.com/blog/how-much-tax-when-you-sell-rental-property) that costs associated with improvements, such as a room addition, or repairs needed to bring a rental house back to a habitable condition can be used to "increase the basis" of the property, which would in effect increase the purchase value, and thus decrease the net capital gains. Can you confirm that these expenses can indeed be used to increase the basis, and if so, where are they entered in the software?

And if any of these costs were reimbursed by insurance, would that affect this?

Thank you.

Re: "Increasing the Basis" of rental property value when selling it

ColeenD3 — Sat, 08 May 2021 23:11:07 GMT

They can absolutely be used and should be. Tack on the amount of the improvement to the basis and that will be your depreciable amount. If any amount was reimbursed by insurance then it was not really an out-of-pocket cost and would not be included.

Re: "Increasing the Basis" of rental property value when selling it

squidlady — Sun, 09 May 2021 16:38:37 GMT

Hi again - exactly where in TT do I actually "add the improvement expenses to the basis"? When I do a topic search in TT for "basis, assets, rental" - I am taken to "income from rentals..." and don't see a place to put the improvement expenses. Thank you!

Re: "Increasing the Basis" of rental property value when selling it

squidlady — Sun, 09 May 2021 19:35:56 GMT

Never mind. Found it. 🙂

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"Increasing the Basis" of rental property value when selling it

Re: "Increasing the Basis" of rental property value when selling it

Re: "Increasing the Basis" of rental property value when selling it

Re: "Increasing the Basis" of rental property value when selling it